As California begins legal adult-use cannabis sales this month, experts at GreenWave Advisors, a research company that specializes in the marijuana industry, are projecting a $5 billion annual marijuana market in the Golden State.

However, entrepreneurs entering the California recreational marijuana market will face some critical issues. None are insurmountable, and it should be well worth the effort, given the expected demand.

The following areas may present challenges.

Supply Chain Issues

It happened in Nevada, when a shortage of available transportation services for cannabis resulted in dispensaries in some areas quickly running out of product. Now, a comparable situation seems a possible in California, given the expected huge marijuana demand from Day 1.

Part of the issue is the licensing process, which only started in December. Licenses are needed for every step of the supply chain. That includes growers, testers, transportation companies and retailers, as well as associated businesses such as security.

Even the state’s top regulator has concerns. Lori Ajax, who leads the state Bureau of Cannabis Control, told the Associated Press that supply chain issues are her chief concern for cannabis businesses in California. That said, she expects things will smooth out over the first few months of cannabis sales.

Banking

This is an issue everywhere, not only in California.

Because marijuana remains illegal at the federal level, cannabis entrepreneurs in states where weed is legal have difficulty finding banks that will extend them services. This has lead to cash-only status for dispensaries and related businesses.

One option to deal with the issue is coming from the state itself. California Treasurer John Chiang spoke in late 2017 about the possibility of a public bank that would serve the cannabis industry. That option came out of meetings with government officials, cannabis entrepreneurs and bank officers.

However, even a government-run bank would have limited services available for cannabis businesses. Chiang’s group also proposed creating a lobbying team to send to Washington, seeking changes in federal banking regulations in reference to marijuana.

Chiang said without changes at the federal level, “a definitive, bulletproof solution will remain elusive.”

Black Market Competition

The black market remains an issue. Even in Colorado, where recreational marijuana has now been legal for three years, a man was arrested in December for trying to buy a car with black market marijuana. The man had four pounds of homegrown cannabis.

The California Department of Food and Agriculture estimates illegal growers produce 13.5 million pounds of marijuana annually, with about 11 million pounds exported to other states for sale. That’s a lot of competition, completely unregulated.

Ajax, in her interview with the Associated Press, said the state plans to wield a carrot rather than a stick, at least initially. She said that education will provide the key to luring black market operations out of the shadows. She said the state should remain flexible in the initial months of the regulated market in terms of enforcement.

The ease of applying for a state license should encourage black market businesses to enter the mainstream, she said, adding, “We, as a state, have to show them that this is where you need to be.”

From retailers to growers, producers, and suppliers, there’s a seemingly never-ending list of startup opportunities in this emerging market. In Start Your Own Cannabis Business, marijuana, biotech, and entrepreneurship reporter Javier Hasse introduces forward-thinking entrepreneurs like you to the industry and shares hard-earned tips and success stories from pioneers and visionaries in the marijuana industry.

The information contained on this website ("Content") represents the views and opinions of the persons or entities expressing them. The Content does not represent an endorsement by, or the views and opinions of, Entrepreneur Media, Inc. ("EMI"), is intended for informational and educational purposes only, and should in no way be interpreted as medical, legal, or any other advice concerning the cultivation, sale, or any other use of marijuana, which, although legal in some states and local jurisdictions throughout the United States, is currently illegal under federal law, as well as in other states and local jurisdictions. Because of the variety of laws, regulations, and ordinances concerning marijuana, the Content may not be suitable for your situation. Consequently, EMI makes no expressed or implied warranties nor assumes any liability whatsoever, concerning the accuracy or reliability of the information contained herein, including warranties about the legality of, or likelihood of success in, conducting a cannabis business. EMI does not advocate violating applicable law, and therefore strongly recommends that you carefully research applicable laws, and consult with appropriate licensed professionals and other experts, before taking any action in connection with, or based on, such Content.

Entrepreneur Media, Inc. values your privacy. In order to understand how people use our site generally, and to create more valuable experiences for you, we may collect data about your use of this site (both directly and through our partners). The table below describes in more detail the data being collected. By giving your consent below, you are agreeing to the use of that data. For more information on our data policies, please visit our Cookie Policy.

Name

Category

Google

Ad Serving, Ad Targeting, Analytics/Measurement, Optimisation

Rubicon

Ad Serving

Teads

Ad Serving

Nativo

Ad Serving

Teads

Ad Serving

New Relic

Analytics/Measurement

Log Entries

Analytics/Measurement

Sailthru

Content Customization

I confirm that I am over the age of 16 and consent to the collection of the above data.